A few years ago, Gerber Finance began looking for ways to grow its ABL business. With its home base in competitive New York City, and an office in Colorado, company leaders knew that the best option would be to target other regions of the country. “If I could throw a football, I could probably hit ten or 15 lenders from within range,” says Gerald Joseph, CEO, Gerber Finance, from his office in Manhattan. “There are so many people doing asset-based lending in New York, and it’s a very oversold and saturated market. So we felt that the way to expand our business was to expand by geographic location.”
To grow its footprint, the company first targeted Florida since it formerly had an office there and still has an established client base. But the right person to lead the office had been elusive. The company was also looking to expand into Chicago, New England and the Mid-Atlantic. Fortuitously, Providence, RI-based Michael Friedman, a former president and CEO of Paramount Restaurant Supply and past Gerber Finance borrower, was looking to transition out of industry and into the finance world, and offered himself up as a candidate to the company.
“Michael presents very well,” Joseph says. “He’s smart. He asks all the right questions, he’s a good listener, and he’s creative in his thinking. He has all the attributes that we at Gerber Finance need.”
So Gerber Finance rearranged its expansion plans, and decided to open an ABL office in New England, in Friedman’s home base of Providence, and appoint Friedman to lead the new office. Providence is New England’s second largest city, but Friedman points out that the country’s northeastern corner is a diverse region with multiple hubs of commerce. “To be successful in New England, you have to travel to the places where business is being done,” he explains during a phone interview from his car — where he spends much of his time these days. “One of our challenges is to try to get out there and spread the word as best as possible without spreading ourselves too thin.”
Gerber Finance’s leadership team is what drew Friedman to the company and take on his new role as vice president in the New England office, charged with business development and account management. As the former employee of a Gerber Finance borrower, Friedman recalls working with Joseph and Jennifer Palmer, SVP of business development and now president, to refinance that company’s revolving line of credit.
“Gerald Joseph and Jennifer Palmer are two people that I really looked up to,” Friedman said. “They were unlike other bankers that I had met, which is not to say anything disparaging about the banking industry. But simply, they were very focused on the personal relationships between their firm and their clients,” Friedman said. “Those relationships were built on trust, understanding and integrity, and I knew that I could feel very good about representing the firm based on the quality of people that I would be working with.”
Friedman’s primary goal is to introduce prospects in New England to the Gerber name and brand. He will target not just borrowers, but the advisors who help them make important decisions — accountants, lawyers, bankers, consultants. His secondary goal is to educate those decision makers and influencers about the role of non-bank financing — “and that borrowing from someone other than a local bank is a very viable and often a preferred way for companies that are growing or in transition or turnaround to access working capital financing,” he said.
In his past professional life, along with a leading role at Paramount Restaurant Supply, Friedman served as president of Monarch Industries, a manufacturer of architectural millwork and custom Retail Fixtures, among other industry stints. He plans to draw on his years outside of the financial world to assist him in his new post. “I’ve taken companies through turnarounds,” he said. “I’ve worked with bankers during times of crisis. I’ve helped raise capital during difficult times. So I think all these experiences allow me to understand the operator’s point of view at a very personal level. I think the other benefit is I have is a wide network of resources that I developed working in several industries that I can bring to our clients to add value to the relationship.”
ABL is Gerber Finance’s core product — making up 80% to 90% of the company’s total offerings, although it offers some trade finance and fixed asset finance. As Gerber Finance grows its ABL business, the New England office will play a key role. Gerber Finance leaders envision the new office emulating their New York group in numbers of clients and scope of portfolio.
The company’s overall strategy to grow ABL in New England and elsewhere gets to the heart of its identity as a lender: building relationships. Members of Gerber Finance aim to know their borrowers to the point where they almost become part of the borrower’s team. “We can’t be as good as them at their business, we can’t understand their business as well as they understand it,” Joseph said. “The intention is to try and learn as much about the potential of a client’s business so that when they have peaks and valleys, turbulent times and things change, we should be able to be there to support them.”
Joseph learned this approach from his late mentor at the international arm of Gerber Group, which he likes to explain in a story: “In the days when there was such a thing as a bank manager, Ernest Samson, our chairman and my mentor, would visit his bank manager every Saturday morning and have a cup of tea with him. After doing this for many months, perhaps even a few years, the banker said, “‘Ernest, you come to see me every Saturday but you never ask me for anything.’” Ernest replied, “‘The day I need something from you, I will not have the time to come in and drink tea with you. I come in every Saturday to tell you about my business, so the day I need something, you will already have all the information you need to make the right decision.’”
In aiming to separate itself from the pack, speed is one edge Gerber Finance tries to gain over its competitors. Because of its close relationships and regular exchange of information with clients, Gerber Finance is able to respond quickly when conditions unexpectedly change and borrowers need a fast influx of capital. Joseph recalls one case a few years ago where speed was a defining element in a company’s success. Gerber Finance no longer lends in the California market — it won’t lend anywhere team members can’t get to within three to four hours — but a former client in California with a credit line needed an extra million dollars in a short time frame.
Joseph recounts the day his former client called: “It must have been mid-day L.A. time, and 3 p.m. here, and he said, ‘I’ve got this deal going, and I need another million dollars for some new purchase orders.’ I said, ‘No problem. Give me a short while.’ At 3 p.m., I managed to put together a brief memo to my credit committee, and I circulated it internally. We have two levels of credit committee. We have an internal credit committee and an external committee in South Africa because the roots of the business are South African. And I emailed them overnight. They read my proposal, and by the time I woke up, I had their approval. I sent an approval to my client in California. So between 3 p.m. Eastern Time on day one, and by the time he walked in at 9 a.m. the next day, he had the approval for $1 million increase.”
Another way Gerber Finance differentiates itself is its acute understanding of the seasonal / cyclical nature of businesses. In one case, a former client that manufactured suntan lotion could not get funding from a bank because of its unusual asset mix. At certain times of the year, the only collateral it had was raw inventory — chemical, bottles, etc. Other times of the year, it had high receivables and no inventory. The most difficult period was when it was in the manufacturing stage — in October, November and December — before it could start shipping in January and February. “We became quite creative and gave them a really healthy line of credit,” Joseph said. “Unfortunately, they moved away when they were bought out by a private equity firm, but that’s what sets us apart — the fact that we can be really creative especially when it comes to seasonal businesses.”
Future of ABL
Both Joseph and Friedman see the ABL market as growing more cutthroat in the immediate future. Joseph said banks’ balance sheets are upside-down; they have too much cash and are trying to find homes for it. The situation is similar for hedge funds.
“They see these ostensibly remarkably good rates that asset-based lenders are putting money out as, and see this as an opportunity to put money out at higher than the 2% or 3% rates that banks are getting,” Joseph said. “So I think it’s going to get more and more competitive. But that will be a cycle. I think that worm will turn in a few years because it’s not an easy business. We are lending in a difficult market. If you’re not getting your money from a bank, then there are obviously some issues, and we as small lenders can handle those issues because we have much more intensive management and collaboration with the clients, which banks obviously cannot do. They’ve got thousands of customers. They cannot service the way we can. I believe there are going to be people who enter this market not understanding the need to be close to your clients and to interact with them on a frequent basis. So the cycle will turn. And there will be losses that will make it easier for us again.”
Jill Hoffman is editor of ABF Journal.